SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MARCH 13, 1998
ACME INTERMEDIATE HOLDINGS, LLC
ACME TELEVISION, LLC
EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 333-40277 52-2050589
DELAWARE 333-40281 52-2050588
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
2101 E. FOURTH STREET, SUITE 202, SANTA ANA, CALIFORNIA 92705
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 245-9499
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 13, 1998, ACME Television Holdings of Missouri, Inc. ("ACME
Missouri"), a wholly-owned subsidiary of ACME Television, LLC (the "Company"),
acquired 100% of the stock of Koplar Communications, Inc. ("KCI") from the
shareholders of KCI. The acquisition was consummated pursuant to a Stock
Purchase Agreement, dated July 29, 1997 (the "Purchase Agreement"), by and among
ACME Television Holdings, LLC ("ACME Parent"), which indirectly holds, through
ACME Intermediate Holdings, LLC ("ACME Intermediate") and its wholly-owned
subsidiary, the Company, all of the outstanding stock of ACME Missouri and who
subsequently assigned the Purchase Agreement to ACME Missouri, KCI and the
shareholders of KCI. Subsequent to the acquisition, KCI was renamed ACME
Television of Missouri, Inc. ("ACME Television Missouri") and KCT was renamed
ACME Television Licenses of Missouri, LLC.
The total purchase consideration of $146.3 million was comprised of: (i)
$143.3 million of cash (reduced by the amount of long-term debt and notes
payable of KCI as of closing and certain other adjustments) and (ii) $3.0
million of consulting fees payable pursuant to a management agreement entered
into between the Company and Edward J. Koplar, the controlling shareholder,
chief executive officer and chief operating officer of KCI. The acquisition cost
of KCI was determined through arms-length negotiations among the parties
involved and management of the Company believes that this cost approximates the
fair value of the assets acquired based on market conditions. The acquisition
cost was funded using the proceeds of (i) the September 30, 1997 sale by the
Company of $175.0 million in aggregate principal amount at maturity of 10 7/8%
Senior Discount Notes due 2004 and (ii) the sale by ACME Intermediate of 71,634
Units
<PAGE>
consisting of $71,634,000 aggregate principal amount at maturity of 12% Senior
Secured Discount Notes due 2005 and 71,634 membership units of ACME Intermediate
and subsequent contribution by ACME Intermediate of the gross proceeds thereof
to the Company. The acquisition was accounted for using the purchase method.
Prior to the closing of the acquisition, ACME Missouri operated Station
KPLR pursuant to a Time Brokerage Agreement, dated September 8, 1997, among ACME
Parent, ACME Missouri, KCI and KCT. Pending receipt of FCC approval of the
transaction, the purchase consideration of KCI was deposited into escrow on
September 30, 1997. On January 2, 1998, the shareholders of KCI received the
escrowed funds in exchange for deposit into the escrow account of all of the
outstanding capital stock of KCI, together with various documents necessary to
consummate the transaction upon receipt of the required FCC approval.
The proposed acquisition of KCI and the terms of the transactions described
above were previously reported in ACME Intermediate's Registration Statement on
Form S-4, File No. 333-40277, which was declared effective by the Securities and
Exchange Commission ("SEC") on February 11, 1998 (the "Intermediate Registration
Statement"), and the Company's Registration Statement on Form S-4, File No.
333-40281, which was declared effective by the SEC on February 11, 1998 ("the
Television Registration Statement").
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements
The following financial statements of Koplar Communications,
Inc. are incorporated by reference to the Financial Statements
contained in the Intermediate Registration Statement at pages
F-17 through F-33 and the Television Registration Statement
<PAGE>
at pages F-17 through F-33, which are attached hereto as
Exhibit 99.3.
(i) Report of Coopers & Lybrand L.L.P.;
(ii) Consolidated Balance Sheets as of December 31, 1995
and 1996 and September 30, 1997 (unaudited);
(iii) Consolidated Statement of Operations for the years ended
December 31, 1994, 1995 and 1996, and the nine months
ended September 30, 1996 (unaudited) and 1997
(unaudited);
(iv) Consolidated Statement of Shareholders' Deficit for the
years ended December 31, 1994, 1995 and 1996 and the nine
months ended September 30, 1997 (unaudited);
(v) Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1995 and 1996, and the nine months
ended September 30, 1996 (unaudited) and 1997
(unaudited); and
(vi) Notes to Consolidated Financial Statements.
(b) Pro Forma Financial Statements
The following pro forma financial statements of the Company and
ACME Intermediate are incorporated by reference to the Pro
Forma Financial Statements contained in the Television
Registration Statement at pages 26 through 30, which are
attached hereto as Exhibit 99.4, and the Intermediate
Registration Statement at pages 28 through 32, which are
attached hereto as Exhibit 99.5, respectively.
(i) Pro Form Consolidated Balance Sheet of the Company for
the nine months ended September 30, 1997 (unaudited);
(ii) Pro Forma Consolidated Statement of the Operations for
the Company for the year ended December 31, 1996
(unaudited) and the nine months ended September 30, 1997
(unaudited);
<PAGE>
(iii) Pro Forma Consolidated Balance Sheet of ACME Intermediate
for the nine months ended September 30, 1997 (unaudited);
and
(iv) Pro Forma Consolidated Statement of Operations for ACME
Intermediate for the year ended December 31, 1996
(unaudited) and the nine months ended September 30, 1997
(unaudited).
(c) Exhibits:
2.1 Stock Purchase Agreement, dated July 29, 1997, by
and among ACME Television Holdings, LLC, Koplar
Communications, Inc. and the shareholders of Koplar
Communications, Inc., incorporated by reference to
Exhibit 10.1 of the Television Registration
Statement and the Intermediate Registration
Statement.
4.1 Indenture, dated September 30, 1997, by and among
ACME Intermediate Holdings, LLC and ACME
Intermediate Finance, Inc., as Issuers, and
Wilmington Trust Company, incorporated by
reference to Exhibit 4.2 of the Intermediate
Registration Statement.
4.2 Form of Securities of ACME Intermediate Holdings,
LLC, incorporated by reference to Exhibit 4.3 of
the Intermediate Registration Statement.
4.3 Indenture, dated September 30, 1997, by and among
ACME Television, LLC and ACME Finance Corporation,
as Issuers, the Guarantors named therein, the
Wilmington Trust Company, incorporated by reference
to Exhibit 4.1 of the Television Registration
Statement.
4.4 Form of Securities of ACME Television, LLC,
incorporated by reference to Exhibit 4.2 of the
Television Registration Statement.
4.5 First Supplemental Indenture, dated February 11,
1998, by and among ACME Television, LLC and ACME
Finance Corporation, as Issuers, the Guarantors
named therein, and Wilmington Trust Company,
incorporated by reference to Exhibit 4.5 of the
Registrants' Quarterly
<PAGE>
Report on Form 10-Q for the period ending March 31,
1998.
4.6 Second Supplemental Indenture, dated March 13,
1998, by and among ACME Television, LLC and ACME
Finance Corporation, as Issuers, the Guarantors
named therein, and Wilmington Trust Company,
incorporated by reference to Exhibit 4.6 of the
Registrants' Quarterly Report on Form 10-Q for the
period ending March 31, 1998.
4.7 Third Supplemental Indenture, dated August 21,
1998, by and among ACME Television, LLC and ACME
Finance Corporation, as Issuers, the Guarantors
named therein, and Wilmington Trust Company,
incorporated by reference to Exhibit 4.7 of the
Registrants' Quarterly Report on Form 10-Q for the
period ending September 30, 1998.
27.1 Financial Data Schedule of ACME Television, LLC.,
incorporated by reference to Exhibit 27.1 of the
Television Registration Statement.
27.2 Financial Data Schedule of ACME Intermediate
Holdings, LLC, incorporated by reference to Exhibit
27.1 of the Intermediate Registration Statement.
99.1 Escrow Agreement, dated September 8, 1997, by and
among ACME Television Holdings, LLC, ACME
Television Licenses of Missouri, Inc., Koplar
Communications, Inc. the shareholders of Koplar
Communications, Inc. and NationsBank, N.A.,
incorporated by reference to Exhibit 10.2 of the
Television Registration Statement and the
Intermediate Registration Statement.
99.2 Time Brokerage Agreement for KPLR-TV, dated
September 8, 1997, by and among ACME Television
Licenses of Missouri, Inc., ACME Television
Holdings, LLC, Koplar Communications Television,
LLC and Koplar Communications, Inc., incorporated
by reference to Exhibit 10.3 of the Television
Registration Statement and the Intermediate
Registration Statement.
<PAGE>
99.3* Financial Statements of Koplar Communications,
Inc., incorporated by reference to the Financial
Statements contained in the Intermediate
Registration Statement at pages F-17 through F-33
and the Television Registration Statement at pages
F-17 through F-33.
99.4* Pro Forma Financial Statements of ACME Television,
LLC, incorporated by reference to the Pro Forma
Financial Statements in the Television Registration
Statement at pages 26 through 30.
99.5* Pro Forma Financial Statements of ACME Intermediate
Holdings, LLC incorporated by reference to the Pro
Forma Financial Statements in the Intermediate
Registration Statement at pages 28 through 32.
- ------------------------
* Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
ACME TELEVISION, LLC
Date: April 22, 1999 By: /s/ Thomas Allen
-------------------------------
Thomas Allen
Executive Vice President and
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
ACME INTERMEDIATE HOLDINGS, LLC
Date: April 22, 1999 By: /s/ Thomas Allen
-------------------------------
Thomas Allen
Executive Vice President and
Chief Financial Officer
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................................................... $ 244 $ 23 $ --
Receivables, less allowance for doubtful accounts of $180 and $213
at December 31, 1995 and 1996, and $252 at September 30, 1997, respectively.......... 7,192 6,549 7,281
Current portion of programming rights.................................................. 5,000 4,700 4,889
Prepaid expenses and other current assets.............................................. 1,382 757 171
Income tax receivable.................................................................. -- 173 --
Deferred income taxes.................................................................. 330 342 1,542
------- ------- -------
Total current assets................................................................ 14,148 12,544 13,883
Property and equipment, net.............................................................. 2,653 2,638 2,394
Programming rights less current portion.................................................. 9,362 6,232 4,097
Deferred financing costs................................................................. 2,607 287 239
Other assets............................................................................. 789 1,612 1,709
------- ------- -------
Total assets........................................................................ $29,559 $23,313 $22,322
======= ======= =======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Note payable--revolver................................................................. $ 4,130 $ -- $ --
Current portion of long-term debt and obligations under capital leases................. 1,221 -- --
Current portion of programming obligations............................................. 5,500 5,300 5,089
Current portion of note payable--programmer............................................ 1,180 400 400
Accounts payable and accrued expenses.................................................. 2,055 1,494 2,552
Cash overdraft......................................................................... -- 1,244 532
Accrued interest....................................................................... 976 112 110
Income taxes payable................................................................... 600 -- --
Other liabilities...................................................................... 195 195 6,095
------- ------- -------
Total current liabilities........................................................... 15,857 8,745 14,989
Long-term obligations:
Long-term debt and obligations under capital leases, less current portion.............. 9,931 13,650 12,381
Programming obligations, less current portion.......................................... 8,932 7,047 4,542
Notes payable--officer/shareholder..................................................... 1,168 -- --
Note payable--programmer, less current portion......................................... 2,412 3,755 3,455
Deferred income taxes.................................................................. 2,101 1,940 1,940
Other liabilities...................................................................... 692 510 282
------- ------- ------
Total liabilities................................................................... 41,093 35,647 37,378
------- ------- ------
Commitments
Shareholders' deficit:
Class A preferred voting stock; $110 par value. Authorized 5,000 shares; issued and
outstanding 863 shares ($1,100 per share liquidation value)......................... 95 95 95
Common nonvoting stock; $1 par value. Authorized 25,000 shares; issued and outstanding
21,206 shares....................................................................... 21 21 21
Paid-in capital........................................................................ 1,041 1,041 1,041
Note receivable--officer/shareholder................................................... (1,111) (1,111) (1,111)
Accumulated deficit.................................................................... (11,580) (12,380) (15,102)
------- ------- -------
Net shareholders' deficit........................................................... (11,534) (12,334) (15,056)
------- ------- -------
Total liabilities and shareholders' deficit......................................... $29,559 $23,313 $22,322
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ----------------------------
1994 1995 1996 1996 1997
------- ------- ------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................................... $33,146 $27,528 $27,260 $ 19,751 $ 21,347
Operating expenses:
Programming...................................... 13,581 9,503 11,365 9,413 8,458
Selling, general and administrative.............. 12,113 11,632 11,318 7,914 13,722
Depreciation and amortization.................... 1,085 791 702 518 490
------- ------- ------- -------- --------
Total operating expenses................. 26,779 21,926 23,385 17,845 22,670
------- ------- ------- -------- --------
Operating income......................... 6,367 5,602 3,875 1,906 (1,323)
------- ------- ------- -------- --------
Other income (expense):
Interest expense................................. (5,777) (2,842) (2,155) (1,522) (1,117)
Gain on sale of broadcasting subsidiary.......... 11,440 -- -- -- --
Realization of amount due under Tax Sharing
Agreement..................................... 3,596 -- -- -- --
Other income..................................... 360 262 121 90 140
Other expense.................................... (2,419) (583) (820) (579) (1,453)
------- ------- ------- -------- --------
Other income (expense)........................... 7,200 (3,163) (2,854) (2,011) (2,430)
------- ------- ------- -------- --------
Income (loss) before income taxes, discontinued
operations and extraordinary items............... 13,567 2,439 1,021 (105) (3,753)
Provision (benefit) for income taxes............... 3,272 523 462 425 (1,031)
------- ------- ------- -------- --------
Income (loss) before discontinued
operations and extraordinary items..... 10,295 1,916 559 (530) (2,722)
Discontinued operations--income from operations of
divested subsidiaries............................ 1,262 -- -- -- --
------- ------- ------- -------- --------
Income (loss) before extraordinary
items.................................. 11,557 1,916 559 (530) (2,722)
Extraordinary items:
Gain on forgiveness of programming obligations,
including interest............................ 21,525 -- -- -- --
Gain on forgiveness of senior debt, including
interest...................................... 24,775 -- -- -- --
Gain on forgiveness of other obligations......... 834 -- -- -- --
Loss on early extinguishment of debt, net of
taxes of $868................................. -- -- (1,359) -- --
------- ------- ------- -------- --------
Net income (loss)........................ $58,691 $ 1,916 $ (800) $ (530) $ (2,722)
======= ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND NINE MONTHS ENDED SEPTEMBER 30,
1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE
CLASS A COMMON RECEIVABLE
PREFERRED NONVOTING PAID-IN OFFICER/ ACCUMULATED
VOTING STOCK STOCK CAPITAL SHAREHOLDER DEFICIT TOTAL
------------ --------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994................ $ -- $70 $ -- $ -- $ (67,716) $(67,646)
Merger of Koplar Enterprises, Inc....... 95 (49) -- -- (4,471) (4,425)
--- --- ------- ------- --------- --------
Balance after merger.................... 95 21 -- -- (72,187) (72,071)
Spin-off of World Events Productions,
Ltd. to shareholder................... -- -- 1,041 -- -- 1,041
Sale of Koplar Properties, Inc. to
shareholder........................... -- -- -- (1,111) -- (1,111)
Net income......................... -- -- -- -- 58,691 58,691
--- --- ------- ------- --------- --------
Balance, December 31, 1994.............. 95 21 1,041 (1,111) (13,496) (13,450)
Net income......................... -- -- -- -- 1,916 1,916
--- --- ------- ------- --------- --------
Balance, December 31, 1995.............. 95 21 1,041 (1,111) (11,580) (11,534)
Net loss........................... -- -- -- -- (800) (800)
--- --- ------- ------- --------- --------
Balance, December 31, 1996.............. 95 21 1,041 (1,111) (12,380) (12,334)
Net (loss) (unaudited)............. -- -- -- -- (2,722) (2,722)
--- --- ------- ------- ---------- --------
Balance, September 30, 1997
(unaudited)........................... $ 95 $21 $ 1,041 $(1,111) $ (15,102) $(15,056)
==== === ======= ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1994 1995 1996 1996 1997
-------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 58,691 $ 1,916 $ (800) $(3,566) $(2,722)
-------- -------- -------- ------- -------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Realization of amount due under Tax Sharing
Agreement........................................ (3,596) -- -- -- --
-------- -------- -------- ------- -------
Deferred income taxes.............................. 2,271 (500) (173) -- --
Amortization of programming rights................. 7,333 5,418 5,360 4,006 3,554
Adjustment to carrying value of programming
rights........................................... -- -- 1,500 1,500 --
Amortization of intangible assets.................... 26 -- -- -- --
Amortization of deferred financing costs............. 384 798 411 396 48
Loss on early extinguishment of debt................. -- -- 2,227 2,227 --
Redemption premium on long-term debt................. (2,365) -- -- -- --
Depreciation......................................... 1,085 791 702 518 490
Gain on sale of broadcasting subsidiary.............. (11,440) -- -- -- --
Change in net assets and liabilities of divested
subsidiaries....................................... (1,262) -- -- -- --
Gain on forgiveness of programming obligations,
including interest................................. (21,525) -- -- -- --
Gain on forgiveness of senior debt, including
interest........................................... (24,775) -- -- -- --
Gain on forgiveness of other obligations............. (834) -- -- -- --
Changes in assets and liabilities:
Receivables........................................ 377 (1,100) 643 1,603 (732)
Prepaid expenses and other current assets.......... 468 (11) (142) (109) 118
Other assets....................................... 175 (37) 44 (25) (1,297)
Accounts payable and accrued expenses.............. (2,771) 649 (561) (104) 1,058
Accrued interest................................... 3,520 350 (301) (43) (2)
Income taxes receivable/payable.................... 400 200 (773) (128) 173
Other long-term liabilities........................ (3,137) (203) (182) (169) 5,672
-------- -------- -------- ------- -------
Total adjustments................................ (55,666) 6,355 8,755 9,672 9,570
-------- -------- -------- ------- -------
Net cash provided by operating activities........ 3,025 8,271 7,955 6,106 6,848
-------- -------- -------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment..................... (839) (1,013) (687) (580) (246)
Investment in affiliate................................ -- (250) (100) (100) (100)
Deposit for PCS auction................................ -- (1,235) (468) -- --
Return of deposits from PCS auction.................... -- -- 468 -- --
Proceeds from sale of broadcast subsidiary............. 14,656 -- -- -- --
-------- -------- -------- ------- -------
Net cash provided by (used in) investing
activities....................................... 13,817 (2,498) (787) (680) (346)
-------- -------- -------- ------- -------
Cash flows from financing activities:
Repayment of notes payable--officer/shareholder........ -- -- (1,168) (1,168) --
Payment on other debt and obligations under capital
leases............................................... (895) (124) (21) (18) (300)
Payment on programming obligations..................... (9,740) (5,230) (5,515) (4,067) (4,224)
Cash overdraft......................................... -- -- 1,244 720 (712)
Repayment of long-term debt............................ (20,000) (2,619) (11,640) (10,848) (1,269)
Proceeds from long-term debt........................... 14,000 -- 14,159 14,159 --
Proceeds from (payment on) revolver, net............... 1,766 2,364 (4,130) (4,130) --
Cash paid to shareholder upon divestiture of
subsidiaries......................................... (82) -- -- -- --
Payment on deferred financing costs.................... (3,789) -- (318) (318) --
-------- -------- -------- ------- -------
Net cash used in financing activities.............. (18,740) (5,609) (7,389) (5,670) (6,525)
-------- -------- -------- ------- -------
Net increase (decrease) in cash.................... (1,898) 164 (221) (244) (23)
Cash, beginning of period................................ 1,978 80 244 244 23
-------- -------- -------- ------- -------
Cash, end of period...................................... $ 80 $ 244 $ 23 $ -- $ --
======== ======== ======== ======= =======
Interest paid............................................ $ 1,873 $ 1,725 $ 1,575 $1,009 $ 1,055
======== ======== ======== ======= =======
Income taxes paid........................................ $ 1,730 $ 601 $ 120 120 --
======== ======== ======== ======= =======
Noncash transactions:
New programming rights purchased under installment
obligations.......................................... $ 3,909 $ 5,685 $ 3,430 $ 2,044 $ 3,334
======== ======== ======== ======= =======
Sale of KP to shareholder.............................. $ 1,111 -- -- -- --
======== ======== ======== ======= =======
Spin-off of WEP to shareholder......................... $ 1,041 -- -- -- --
======== ======== ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(1) ORGANIZATION
The Company operates an independent television station in St. Louis,
Missouri (KPLR-TV) and until June 29, 1994, also operated an independent
television station in Sacramento, California (KRBK-TV). The broadcasting license
of KPLR-TV is owned by Koplar Television Co., L.L.C., a 99.9%-owned subsidiary
of Koplar Communications, Inc.
Beginning in late 1990, the television industry and, in particular, the St.
Louis television market experienced a severe decline in advertising revenues
which, coupled with a continuing rise in fixed, long-term programming costs and
sports broadcast rights fees, caused the Company to experience significant cash
flow difficulties. As a result, the Company had been in payment default on its
senior notes with its long-term lenders beginning May 16, 1991. On October 11,
1991, the lenders issued notices of acceleration to the Company of all unpaid
principal, amounting to $35,000,000, plus accrued interest. During 1991, the
Company, because of its cash flow difficulties, also began to delay programming
payments to program distributors, and was consequently in default of these
agreements based on the stated payment terms of the program contracts.
On November 16, 1993, Bankers Trust Company purchased the senior notes from
the long-term lenders. Also, during 1993, management executed an agreement with
Pappas Telecasting Companies (Pappas) to sell substantially all of the assets of
Koplar Communications of California, Inc. (KRBK-TV). In addition, the Company
entered into agreements with Pappas whereby, concurrent with the closing of the
sale, Pappas would extend a loan to the Company and provide management services
to the Company under a management services agreement for a period of seven
years. The agreements with Pappas did not prohibit the Company from seeking and
obtaining alternative sources of financing prior to the closing, in which case
the lending and management agreements could be terminated for a specified fee.
During 1994, the Company completed a refinancing with Foothill Capital
Corporation and the sale of KRBK-TV to Pappas, along with a series of related
restructuring transactions. The proceeds of the refinancing were used, along
with the proceeds from the sale of KRBK-TV, to redeem the Bankers Trust senior
notes, pay the termination fee associated with the management services
agreement, provide up-front payments related to the restructuring of the
Company's programming obligations and pay various other fees and liabilities.
In addition, during 1994, a corporate restructuring of the Company and
related entities was completed whereby Koplar Enterprises, Inc., formerly the
parent of Koplar Communications, Inc. (KCI), was merged into KCI, World Events
Productions, Ltd., a subsidiary of KCI, was spun off to a shareholder, and
Koplar Properties, Inc., a subsidiary of KCI, was sold to a shareholder.
The aforementioned transactions are more fully described in the
accompanying footnotes.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. In management's opinion, all adjustments necessary for a fair
presentation are reflected in the interim periods presented. All adjustments are
of a normal recurring nature.
F-21
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The following is a summary of the significant accounting policies followed
in the preparation of these financial statements:
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Koplar
Communications, Inc. and subsidiary. Accordingly, all references herein to
Koplar Communications, Inc. include the consolidated results of its subsidiary.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
INTERIM FINANCIAL INFORMATION
The consolidated financial statements as of September 30, 1997 and for the
nine months ended September 30, 1996 and 1997 are unaudited but reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the accompanying
consolidated financial position and results of operations and cash flows.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1997.
CASH AND CRECIT CONCENTRATIONS
The Company maintains several cash accounts, including a lockbox account,
in one financial institution. The cash balances in these accounts may at times
exceed insured limits. The majority of the Company's receivables are due from
local and national advertising agencies and are not collateralized.
The Company had a negative cash balance in its account of approximately
$1,244,000 at December 31, 1996 and $532,000 at September 30, 1997,
respectively. These amounts are included in current liabilities as a cash
overdraft.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation expense is
computed using the straight-line method over the estimated useful lives of the
related assets. The accelerated cost recovery system (ACRS) and modified
accelerated cost recovery system (MACRS) are used for income tax purposes.
Renewals and betterments are capitalized to the related asset accounts, while
repair and maintenance costs, which do not improve or extend the lives of the
respective assets, are charged to operations.
When assets are retired or otherwise disposed of, the assets and related
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is recorded in operations.
PROGRAMMING RIGHTS
Programming rights are recorded at cost when the program is available to
the Company for broadcasting. Agreements define the lives of the rights and the
number of showings. The cost of programming rights is charged against earnings
either on the straight-line basis over the term of the agreement or per play for
certain syndicated contracts based on the number of plays specified in the
contract.
Programming rights and related obligations are recorded at cost without
recognition of any imputed interest charges.
F-22
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Programming rights representing the cost of rights of programs available
for broadcasting at the end of each period and which management expects to be
broadcast in the succeeding fiscal year are shown as a current asset.
The Company assesses the valuation of its programming rights on an ongoing
basis by evaluating the unamortized rights and future programming rights
commitments and comparing the anticipated future number of plays and related
revenue potential with the related unamortized cost. When unamortized cost
exceeds the undiscounted estimated future revenue, the Company will recognize an
adjustment to the related carrying value. During 1996, the Company recorded an
adjustment to the carrying value of certain programming rights of $1,500,000.
DEFERRED FINANCING COSTS
Financing costs incurred in connection with obtaining financing are
deferred and amortized on a straight-line basis over the term of the borrowings.
Amortization of deferred financing costs, included in interest expense, totaled
approximately $384,000, $798,000 and $411,000, for the years ended December 31,
1994, 1995 and 1996, respectively. In addition, the Company expensed
approximately $2,227,000 of deferred financing costs during 1996 as a result of
the Company's refinancing of its long-term debt (see note 6). Accordingly, the
expense related to this transaction has been reflected as an extraordinary item
in the consolidated statements of operations.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of temporary differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the temporary
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
INTEREST RATE HEDGE AGREEMENTS
The Company enters into interest rate swap agreements which involve the
exchange of fixed- and floating-rate interest payments periodically over the
life of the agreement without the exchange of the underlying principal amounts.
All of the agreements entered into by the Company relate to outstanding debt
obligations. Accordingly, the Company accounts for these instruments similar to
a hedge agreement and the differential to be paid or received is accrued as
interest rates change and recognized over the life of the agreements as an
adjustment to interest expense.
REVENUE RECOGNITION
Revenues from advertisements are recognized as the commercials are
broadcast. The Company receives such revenues net of commissions deducted by
advertising agencies and national sales representatives.
BARTER REVENUES
Barter transactions in which the Company accepts products or services in
exchange for commercial air time are recorded at the estimated fair values of
the products or services received. Barter revenues are recognized when
commercials are broadcast. The assets or services received in exchange for
broadcast time are recorded when received or used. Certain of the Company's
programming agreements involve the exchange of advertising time for programming.
The Company does not record revenues and cost of revenues related to these
F-23
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
arrangements, which have no impact on earnings. The Company estimates that
revenues and costs associated with these agreements were approximately
$2,696,000, $2,124,000 and $2,612,000 for 1994, 1995 and 1996, respectively.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS
In 1995, the Company placed a refundable deposit of $1,235,000 with the FCC
in order to bid on the regional rights for a new technology, personal
communications system. This product is expected to replace cell phones, beepers
and other portable communications technology. The Company was the successful
bidder on a number of PCS licenses. During 1996, $468,000 of the initial deposit
was returned to the Company. Approximately $767,000 remains on deposit, which is
included in other long-term assets, with the FCC for the obtained licenses.
In fourth quarter 1996, another round of PCS bidding was opened by the FCC.
The Company has a deposit of $467,500 with the FCC which is included in prepaid
expenses and other current assets. The auction was concluded and the deposit was
returned in the first quarter of 1997.
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1995 and 1996 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED
1995 1996 USEFUL LIVES
------ ------- ---------------
<S> <C> <C> <C>
Land.............................................................. $ 464 $ 464 --
Buildings and improvements........................................ 1,822 1,780 15 to 40 years
Equipment, furniture and fixtures................................. 6,854 6,463 3 to 15 years
------ -------
9,140 8,707
Less accumulated depreciation..................................... (6,487) (6,069)
------ -------
$2,653 $ 2,638
====== =======
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was approximately $1,085,000, $791,000 and $702,000, respectively.
(5) NOTE PAYABLE--REVOLVER
The note payable--revolver was repaid in July 1996 as part of a debt
refinancing with Nations Bank. Outstanding checks of $1,179,229, which cleared
against the revolver, are reflected in the note payable--revolver balance at
December 31, 1995.
F-24
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(6) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
The Company's long-term debt and obligations under capital leases at
December 31, 1995 and 1996 consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Long-term debt...................................... $11,131 $13,650
Obligations under capital leases.................... 21 --
------- -------
11,152 13,650
Less current portion................................ (1,221) --
------- -------
$ 9,931 $13,650
======= =======
</TABLE>
At December 31, 1995, the Company's long-term debt consisted of a revolving
loan and a term loan to Foothill Capital Corporation. The Company used
$3,000,000 of the term loan proceeds to pay a commitment fee to Foothill for
entering into the financing arrangement. Such arrangement required the payment
of interest monthly at 12%.
On July 10, 1996, the Company refinanced the existing debt maintained by
Foothill with Boatmen's. The Company received a revolving commitment from
Nations Bank of $19,000,000 (the Loan Agreement), of which $14,266,000 was drawn
from the commitment to satisfy certain existing obligations and refinancing
costs. The maximum amount available under the revolving loan commitment is as
follows for the periods outlined:
<TABLE>
<S> <C>
July 10, 1996--June 30, 1997............................... $19,000,000
July 1, 1997--June 30, 1998................................ 18,000,000
July 1, 1998--June 30, 1999................................ 17,000,000
July 1, 1999--June 30, 2000................................ 15,500,000
July 1, 2000--June 30, 2001................................ 14,000,000
</TABLE>
At December 31, 1996, the Company had borrowed $13,650,000 against the
revolving commitment agreement. Under the terms of the Loan Agreement, the
Company shall repay the loan and all unpaid interest thereon on July 1, 2001.
The loan bears interest at either the alternative base rate or the adjusted
LIBOR rate, as defined in the Loan Agreement.
In order to minimize interest rate risk, the Company entered into a
five-year interest rate swap for $5,000,000 of the borrowings, which locked in
an interest rate of approximately 10%. The Company also entered into a
three-year interest rate swap for $2,000,000 of the borrowings, which locked in
an interest rate of approximately 10%. In addition, the Company entered into a
30-day interest rate swap for $5,000,000 of the outstanding borrowings, which
locked in an interest rate of approximately 8.87% at December 31, 1996. The
remaining borrowings accrue interest at the prime interest rate plus 1/4-- 3/4%
per annum based on certain criteria. Interest is payable monthly. In addition,
the Company will pay quarterly a commitment fee of .5% per annum of the unused
portion of the revolving commitment to Nations Bank. Amounts outstanding under
the Loan Agreement are collateralized by substantially all assets of the
Company.
Based upon the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt approximates carrying value.
The Loan Agreement includes various restrictive covenants including
requirements that the Company maintain a specified minimum fixed charge
coverage, maximum funded debt to operating cash flow ratio and maximum funded
obligations ratio. In addition, the agreement places limitations on the amount
of capital expenditures and the amount of capital leases.
F-25
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(6) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES--(CONTINUED)
The assets and related obligations under capital leases have been recorded
at amounts equal to the present value of future minimum lease payments. Assets
held under capital leases as of December 31, 1995 are included in equipment at a
cost of approximately $114,000, less accumulated depreciation of approximately
$90,000. There is no remaining lease obligation at December 31, 1996.
On June 29, 1994, utilizing the proceeds from the sale of KRBK and
refinancing of the Company's debt with Foothill, the Company redeemed its senior
notes by making a payment to Bankers Trust Company of $20,000,000 plus a
redemption premium of $3,750,000, net of interest paid through the redemption
date of $1,385,000. Upon redemption of the senior notes, all remaining liability
for principal and interest under the senior notes was forgiven. Accordingly, the
Company has recorded a gain on forgiveness of senior debt and accrued interest
in the amount of $24,775,000, which is reflected as an extraordinary item in the
1994 Consolidated Statement of Operations.
(7) PROGRAMMING OBLIGATIONS
Programming obligations are generally classified as current or noncurrent
liabilities according to the payment terms of the various contracts.
During previous years, the Company was in technical default on its
programming obligations and subsequently reached restructuring agreements with
all of its program distributors in 1994. Under the restructuring agreements, all
prior defaults under the original programming agreements were waived by the
program distributors. The Company received partial forgiveness on outstanding
programming obligations, and all accrued interest on delinquent payments was
also forgiven. The total gain on forgiveness of programming obligations and
accrued interest was $21,525,000 and is reflected as an extraordinary item in
the 1994 Consolidated Statement of Operations. Several of the restructuring
agreements contain provisions under which the Company may be held liable for an
amount greater than the restructured liability amount that is currently recorded
at December 31, 1996. The Company may also be held secondarily liable for
certain of a formerly-owned subsidiary's programming obligations in the event of
that subsidiary's default on the restructured obligations in the future. Also,
certain agreements state that the entire programming obligations amount prior to
restructuring (including accrued interest) becomes payable upon default of the
restructured terms going forward. Additionally, several agreements contain
cross-default provisions whereby default by one company (the Company or KRBK)
causes the other to be in default of their restructured obligations.
At December 31, 1996, future minimum payments based on contractual
agreements are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR,
- ------------
<S> <C>
1997........................................................... $ 5,300
1998........................................................... 4,176
1999........................................................... 2,688
2000........................................................... 183
---------
$12,347
=========
</TABLE>
(8) NOTE PAYABLE--PROGRAMMER
Note payable--programmer represents an additional amount owed to Warner
Brothers ('WB') in connection with the restructuring of certain programming
obligations in 1994 (see note 7). The Company entered
F-26
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(8) NOTE PAYABLE--PROGRAMMER--(CONTINUED)
into a Stock Purchase, Option and Repurchase Agreement with WB, under which the
Company has an obligation in the amount of $3,692,000 to WB in addition to the
liability currently recorded as programming obligations.
Under this agreement, the Company issued a promissory note for $3,092,000
to WB (payable in even installments over 36 months, plus interest at 1% over the
prime rate per annum, payments to begin upon notification by WB to the Company),
and also transferred to WB stock in an entity which is partially owned by the
shareholder of the Company (see note 17). However, the agreement gives the
programmer a 'Put Right' under which the stock may be transferred by WB to the
Company at any time until either June 28, 1997 or the exercise of the First
Option (see below), at which time $600,000 is payable within thirty days. In
1995, $100,000 was paid on the Put Right. At December 31, 1995, the remaining
liability was $3,592,000.
The Company replaced the note payable--programmer with a restructured
agreement on December 31, 1996. The previous note payable and the related
accrued interest were replaced with Note A and Note B. Note A is in the amount
of $2,000,000 and at December 31, 1996, $1,900,000 is outstanding. Interest
accrues at prime plus 1/2%. Principal of $100,000 plus accrued interest to date
are payable quarterly until the note is satisfied. There is no accrued interest
at December 31, 1996.
Note B is an option note for $2,250,000. At December 31, 1996, $2,250,000
was outstanding on Note B. The programmer has an option which can be called
between January 1, 2000 and December 31, 2001. If called, WB would receive 12%
of a related entity's stock instead of cash payments on the $2,250,000
promissory note. The Company has a 'Put Right' which can be exercised between
January 1, 1997 and December 31, 2001. If put, WB would receive 12% of the
related entity's stock instead of cash payments on the $2,250,000 promissory
note. Interest accrues at prime. There is no accrued interest at December 31,
1996.
(9) NOTE RECEIVABLE--SHAREHOLDER
One June 1, 1994, the Company divested Koplar Properties, Inc. and
Subsidiary (KP) to a shareholder of the Company. KP is primarily engaged in the
renting and operating of commercial and residential real estate in the St. Louis
area.
The common stock of KP was sold to the shareholder of the Company in
exchange for a nonrecourse promissory note receivable in an amount equal to the
appraised value of the purchased stock. The amount of this promissory note
receivable was determined based on an independent market value appraisal of the
common stock of KP. The gain on the sale of KP, amounting to $291,000 has been
deferred. The promissory note bears interest at an applicable Federal rate and
is payable in five equal annual installments beginning June 1997. The note
receivable has been classified as a contra-equity account, net of the deferred
gain, for financial statement reporting purposes.
(10) COMMITMENTS
In conjunction with obtaining new programming and other related
considerations the Company has commitments amounting to approximately $5,394,000
for future programming rights and other considerations as of December 31, 1996.
F-27
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(10) COMMITMENTS--(CONTINUED)
The aggregate payments for these commitments over the next five years are
as follows (in thousands):
<TABLE>
<S> <C>
1997............................................................. $ 281
1998............................................................. 1,323
1999............................................................. 1,772
2000............................................................. 1,316
2001............................................................. 702
------
$5,394
======
</TABLE>
In January 1995, the Company entered into an Affiliation Agreement with WB
Communications (Warner Brothers) under which KPLR-TV became an affiliate of the
WB Network. The term of this agreement is for five years and is noncancelable by
the Company. Under this agreement, Warner Brothers provides programming to
KPLR-TV in exchange for a specified number of advertising spots during this
programming which are to be retained and sold by Warner Brothers. With the
launch of the WB Network on January 11, 1995, KPLR-TV is required to broadcast
the network programming during one specified prime-time evening in each week.
Throughout the five-year term of the agreement, the network broadcast
requirements of the agreement increase until the network programming is
broadcast seven nights per week, plus a specified number of weekday morning,
afternoon and late night timeframes.
Under the Affiliation Agreement, the Company is required to make an annual
payment to Warner Brothers if the ratings and revenues in prime time broadcasts
of WB Network programming for the current year exceed ratings and revenues
achieved by the Company in the preceding year. No such payments were payable to
Warner Brothers for the years ended December 31, 1995 and 1996.
The Company has an operating lease for certain equipment that calls for
annual payments of approximately $42,000 for a remaining period of thirteen
years. Total rent expense under operating leases for the years ended December
31, 1994, 1995 and 1996 was approximately $100,000, $116,000 and $123,000,
respectively.
(11) NOTES PAYABLE--OFFICER/SHAREHOLDER
Indebtedness to the shareholder of the Company consists of a promissory
note payable for $1,023,000 and debentures payable for $145,000, totaling
$1,168,000 at December 31, 1995. Unpaid interest on these notes is included in
accrued interest at December 31, 1995. The notes and interest were repaid in
July 1996 when the Company refinanced its Foothill debt with Nations Bank (see
note 6).
F-28
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(12) INCOME TAXES
The provisions for income taxes on continuing operations for the years
ended December 31 consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ----- -----
<S> <C> <C> <C>
Current:
Federal.................................................................... $ 361 $ 876 $ 552
State...................................................................... 640 147 83
Deferred:
Federal.................................................................... 1,980 (436) (150)
State...................................................................... 291 (64) (23)
------ ----- -----
Provision for income taxes.............................................. $3,272 $ 523 $ 462
====== ===== =====
</TABLE>
The difference between the actual tax provision and the amounts obtained by
applying the statutory U.S. Federal income tax rate of 34% to income before
income taxes, discontinued operations and extraordinary items for the years
ended December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------ ------
<S> <C> <C> <C>
Income before income taxes, discontinued operations, and extraordinary
items................................................................... $13,567 $2,439 $1,021
======= ====== ======
Tax provision computed at statutory rate.................................. $ 4,613 $ 829 $ 347
Increases (reductions) in taxes due to:
State income taxes (net of Federal tax benefit)......................... 614 55 40
Increase (decrease) in valuation allowance.............................. (2,301) 0 0
Other................................................................... 346 (361) 75
------- ------ ------
Actual tax provision...................................................... $ 3,272 $ 523 $ 462
======= ====== ======
</TABLE>
In 1994, a valuation allowance related to deferred income tax assets of
approximately $15,441,000 was reversed due primarily to the gains on forgiveness
of debt and discontinued operations. There was no valuation allowance at
December 31, 1994, 1995 and 1996. As a result of the reversal of the valuation
allowance and the exclusion from taxable income of a significant portion of the
gain on forgiveness of obligations, no tax effect has been presented related to
1994 extraordinary items and discontinued operations as the amounts are not
material.
Pursuant to an agreement (Tax Sharing Agreement) entered into by the
Company and Four Seasons Group, Inc. (Four Seasons), a former subsidiary of the
Company which was spun off in 1989, the Company had a claim against Four Seasons
for 50% of all tax deficiencies arising during the periods prior to the
spin-off. During 1994, Koplar Enterprises, Inc. (KE), formerly the parent of
Koplar Communications, Inc., executed an agreement with Four Seasons whereby
Four Seasons acquired a portion of a promissory note payable by KE (the Note),
issued in connection with a prior redemption of certain shares of KE's preferred
stock. Four Seasons exchanged such acquired portion of the Note for the amount
owing by Four Seasons pursuant to the Tax Sharing Agreement, thereby satisfying
KE's obligation to pay such portion of the Note to Four Seasons, and satisfying
Four Seasons' obligation to KE under the Tax Sharing Agreement. KE had not
recorded a benefit related to the Tax Sharing Agreement in prior years since it
was not realizable until payment of the tax obligation by KE and payment by Four
Seasons of certain of its obligations arising from the agreement. During 1994,
the Company has reflected
F-29
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(12) INCOME TAXES--(CONTINUED)
income related to the realization of the amount due under the Tax Sharing
Agreement of approximately $3,596,000.
The tax effect of temporary differences between the tax basis of assets and
liabilities and their corresponding amounts for financial statement reporting
purposes at the tax rates expected to be in effect when such differences reverse
are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Current deferred income tax asset:
Allowance for doubtful accounts.................................................... $ (71) (83)
Accrued vacation payable........................................................... (64) (64)
Bonus payable...................................................................... (195) (195)
Noncurrent deferred income tax liability:
Book over tax basis of fixed assets................................................ 76 22
Book over tax basis of programming rights.......................................... 2,025 1,918
------ -----
Net deferred income tax liability.................................................. $1,771 1,598
====== =====
</TABLE>
During 1996, the Internal Revenue Service (IRS) initiated an audit of the
Company's 1994 Federal income tax returns. Because the IRS has not made a final
determination of any Federal tax liabilities, no estimate of any resulting
liability can be made. In the opinion of management, the proposed adjustments,
if any, from the IRS will not have a material effect on the consolidated
financial position, results of operations or liquidity of the Company.
(13) 401(K) PLAN
Substantially all employees are eligible to participate in a 401(k) Plan
sponsored by the Company. The Company may match a specified percentage of an
employee's contribution up to a defined limit at its discretion. The amount
charged to expense by the Company for the years ended December 31, 1994, 1995
and 1996 was approximately $74,000, $62,000 and $55,000, respectively.
(14) INVESTMENT IN AFFILIATE
In 1995, the Company entered into an agreement with another television
station in St. Louis which provides that the Company make annual payments of
$200,000 to the owners of the station (the Owners) for three years, in return
for programming and other considerations over a three-year period. The agreement
may be extended by the Owners for an additional two years. Under a separate
agreement, the Company has agreed to make up to $3,500,000 in capital
contributions to a limited liability company owned by the Company and the
owners, formed to acquire television stations and invest in other communications
opportunities, as approved by the Company. No such additional contributions have
been made.
(15) MERGER WITH KOPLAR ENTERPRISES, INC.
On June 21, 1994, a plan of merger was adopted whereby KE was merged into
Koplar Communications, Inc. The merger was consummated on June 30, 1994. In
connection with the merger, 862.875 shares of KE Class A Preferred Voting Stock,
par value $110 and 21,206.25 shares of KE Common Nonvoting Stock, par
F-30
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(15) MERGER WITH KOPLAR ENTERPRISES, INC.--(CONTINUED)
value $1, were canceled and identical amounts of Class A Preferred Voting and
Common Nonvoting Stock were issued by the Company to the existing shareholders
of KE.
The Class A Preferred Voting Stock provides for full voting rights on a
one-vote-per-share basis and noncumulative annual dividends of $121 per share
only if, as and when declared by the Board of Directors. The stock is redeemable
at the Company's option at $1,100 per share and has a liquidation value of
$1,100 per share.
(16) DIVESTITURE OF SUBSIDIARIES--DISCONTINUED OPERATIONS
On June 1, 1994, the Company divested two of its subsidiaries, World Events
Productions, Ltd. (WEP) and Koplar Properties, Inc. and Subsidiary (KP). WEP is
primarily engaged in the business of international production and marketing of
television programming, and KP is primarily engaged in the renting and operating
of commercial and residential real estate in the St. Louis area. Both entities
were divested to the shareholder of the Company.
The common stock of WEP was distributed to the Shareholder of the Company
in a tax-free spin-off transaction. The shareholder's deficit of WEP at the date
of divesture was recorded as an increase to additional paid-in capital for the
year ended December 31, 1994, reflecting the fact that WEP's liabilities
exceeded its assets at the time of divestiture.
The common stock of KP was sold to the shareholder of the Company in
exchange for a nonrecourse promissory note receivable as described in Note 9.
Condensed financial information of World Events Productions, Ltd. and
Koplar Properties, Inc. at June 1, 1994 (the date of divestiture) and for the
five months then ended is as follows (in thousands):
<TABLE>
<CAPTION>
WEP KP
------- ------
<S> <C> <C>
Current assets...................................................................... $ 207 293
Noncurrent assets................................................................... 351 2,912
------- ------
$ 558 3,205
======= ======
Current liabilities................................................................. $ 1,421 1,717
Noncurrent liabilities.............................................................. 178 377
Shareholder's equity (deficit)...................................................... (1,041) 1,111
------- ------
$ 558 3,205
======= ======
Revenues............................................................................ $ 613 491
======= ======
Operating income.................................................................... $ 334 94
Interest and other.................................................................. -- 834
------- ------
Income from operations of divested subsidiaries..................................... $ 334 928
======= ======
</TABLE>
The net income of these entities in 1994 through date of divestiture is
recorded as income from operations of divested subsidiaries in the 1994
Consolidated Statement of Operations.
(17) RELATED PARTY TRANSACTIONS
During previous years, the Company advanced funds under a loan agreement to
ISW, Inc. (ISW), a company which is partially owned by the shareholder of the
Company. The amount of the loans receivable and accrued
F-31
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(17) RELATED PARTY TRANSACTIONS--(CONTINUED)
interest amounted to approximately $3,480,000 at December 31, 1993. Prior to
1994, WEP determined collection of the loan and accrued interest was
questionable and established an allowance for the entire amount. In 1996, the
Company advanced $443,210 to ISW. This amount was included in a loan receivable
balance which is fully reserved.
In 1994, prior to its divestiture, WEP transferred these loans and accrued
interest to the Company. Pursuant to a Debt Conversion Agreement dated June 29,
1994, approximately $600,000 of the total receivable was converted by the
Company into ISW common stock. This common stock was then transferred by the
Company to a program distributor pursuant to a programming restructuring
agreement, as described in Note 8. At December 31, 1995 and 1996, the remaining
balance of loans and interest receivable by the Company from ISW is
approximately $2,808,000 and $3,251,000 with a corresponding allowance.
The Company was charged approximately $70,000, $139,200 and $139,200 in
1994, 1995 and 1996, respectively, in rent and parking charges by KP.
(18) SALE OF BROADCAST SUBSIDIARY--KRBK-TV
On November 11, 1993, the Company had entered into an agreement with Pappas
Telecasting Companies (Pappas) to sell substantially all of the assets and
assign specified liabilities of KRBK-TV to Pappas for $22,000,000 plus certain
working capital adjustments as defined in the agreement, payable in cash at
closing. The agreement and transaction was contingent upon successful
restructuring of the programming obligations, among other things. As part of the
arrangement with Pappas, the Company and Pappas had entered into a management
services agreement, as well as a lending agreement which would have been
effective at the time of closing of the sale of KRBK-TV. The Company was seeking
alternative financing at the time these agreements with Pappas were completed.
During 1994, the Company completed restructuring agreements with its
program distributors, as discussed in Note 7. The sale of the assets and
liabilities of KRBK-TV to Pappas took place on June 29, 1994, for a net sale
price of $22,356,000.
Concurrent with the sale transaction, the Company obtained alternative
financing to the proposed Pappas lending agreement, as discussed in Notes 5 and
6. Upon closing of this alternative financing, the lending agreement and
management services agreement were terminated by the Company. As required under
the management services agreement, a total of $7,000,000 plus liquidated damages
and expenses of $700,000 was owed to Pappas, which was applied against the
purchase price for KRBK-TV resulting in net proceeds of $14,656,000.
F-32
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(18) SALE OF BROADCAST SUBSIDIARY--KRBK-TV--(CONTINUED)
The assets and liabilities of KRBK-TV that were sold to Pappas on June 29,
1994 are reflected below (in thousands):
<TABLE>
<S> <C>
Assets:
Accounts receivable........................................................................ $ 3,224
Prepaid expenses and deposits.............................................................. 163
Programming rights......................................................................... 8,011
Property, plant and equipment.............................................................. 11,149
Accumulated depreciation................................................................... (7,283)
FCC license................................................................................ 1,481
-------
Total assets sold....................................................................... $16,745
=======
Liabilities:
Accounts payable and accrued expenses...................................................... $ 1,211
Capital leases payable..................................................................... 133
Programming obligations.................................................................... 12,185
-------
Total liabilities transferred or assigned............................................... $13,529
=======
</TABLE>
The following summarizes the revenues and expenses included in the 1994
Consolidated Statement of Operations (in thousands):
<TABLE>
<S> <C>
Revenues...................................................................................... $ 7,108
Programming costs............................................................................. (3,986)
Selling, general and administrative........................................................... (2,974)
Other, net.................................................................................... (1,153)
-------
Net loss.................................................................................... $(1,005)
=======
</TABLE>
The Company recorded a gain on the sale of these assets and liabilities in
the amount of $11,440,000, which has been reflected in the accompanying 1994
Consolidated Statement of Operations.
(19) SALE OF COMPANY
On July 29, 1997, the shareholders of the Company (Owners) agreed to sell
all of their shares of the Company's common and preferred stock to ACME
Television Holdings, LLC (ACME) for $146,000,000. On September 30, 1997,
pursuant to the stock purchase agreement between ACME and the Owners, ACME
placed $143,000,000 into an escrow account and ACME and the Owners filed with
the FCC a request to transfer the Company's broadcast license. The Company has
also entered into a local marketing agreement with ACME under the terms of which
ACME receives the economic benefit of the Company's earnings, effective October
1, 1997. In connection with the ACME transaction, the Company has recorded at
September 30, 1997 approximately $5.9 million in non-recurring bonus expense to
certain executives and other employees of the Company. This amount is included
in other current liabilities as of September 30, 1997.
F-33
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements (the
'Pro Forma Financial Statements') are based on the financial statements of ACME
Television, Koplar Communications and Channel 32, Incorporated ('Channel 32')
included elsewhere in this Prospectus, adjusted to give effect to the
Transactions. The unaudited pro forma consolidated statements of operations give
effect to the Knoxville Acquisitions and the Pending Acquisitions as if they had
occurred as of the beginning of the periods shown, and the unaudited pro forma
consolidated balance sheet gives effect to the Knoxville Acquisition and the
Pending Acquisitions as if they had occurred as of September 30, 1997. The pro
forma data are based upon available information and certain assumptions that
management believes are reasonable. The Pro Forma Financial Statements do not
purport to represent what the Company's result of operations or financial
condition would actually have been had the transactions occurred on such dates
or to project the Company's results of operations or financial condition for any
future period or date. The Pro Forma Financial Statements should be read in
conjunction with the financial statements of ACME Television and the historical
financial statements of Koplar Communications and Channel 32, the prior owners
of Station KPLR and Station KWBP, respectively, included elsewhere in this
Prospectus, and 'Management's Discussion and Analysis of Results of Operations
and Financial Condition.'
The Knoxville Acquisition and the Pending Acquisitions will be accounted
for using the purchase method of accounting. After each acquisition, the total
consideration of such acquisition will be allocated to the tangible and
intangible assets acquired and liabilities assumed based upon their respective
estimated fair values. The allocation of the aggregate total consideration
included in the Pro Forma Financial Statements is preliminary as the Company
believes further refinement is impractical at this time. However, the Company
does not expect that the final allocation of the total consideration will
materially differ from the preliminary allocations set forth herein.
26
<PAGE>
ACME TELEVISION, LLC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
----------------------------- PRO FORMA PRO FORMA
ACME KOPLAR ----------- -----------
TELEVISION COMMUNICATIONS ADJUSTMENTS THE COMPANY
------------ -------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents........................................... $ 27,211 $ -- $ (21,210)(1) $ 6,001
Accounts receivable, net............................................ 405 7,281 -- 7,686
Due from affiliates................................................. 14,876 -- -- 14,876
Current portion of programming rights............................... 581 4,889 -- 5,470
Prepaid expenses and other current assets........................... 201 513 -- 714
-------- -------- ----------- -----------
Total current assets...................................... 43,274 12,683 (21,210) 34,747
Property and equipment, net......................................... 4,177 2,394 -- 6,571
Programming rights, net of current portion.......................... 590 4,097 -- 4,687
Deposit............................................................. 143,016 -- (143,000)(1) 16
Other assets........................................................ 11,772 3,148 (3,000)(1) 9,337
(2,583)(2)
Broadcast licenses and other intangibles............................ 22,570 -- 171,905 (1) 194,475
-------- -------- ----------- -----------
Total assets.............................................. $225,399 $ 22,322 $ 2,112 $ 249,833
======== ======== =========== ===========
LIABILITIES AND MEMBERS' CAPITAL/SHAREHOLDERS' DEFICIT
Accounts payable and accrued liabilities............................ $ 10,072 $ 9,289 $ 1,000 (1) $ 14,653
(5,708)(2)
Current portion of programming rights payable....................... 876 5,089 -- 5,965
Current portion of note payable-programmer.......................... -- 400 (400)(2) --
Note payable to bank................................................ 3,500 -- -- 3,500
Current portion of capital lease obligations........................ 284 -- -- 284
-------- -------- ----------- -----------
Total current liabilities................................. 14,732 14,778 (5,108) 24,402
Programming rights payable, net of current portion.................. 597 4,542 -- 5,139
Obligations under lease, net of current portion..................... 422 -- -- 422
Note payable-programmer............................................. -- 3,455 (3,455)(2) --
Other long-term liabilities......................................... -- 2,222 2,000 (1) 4,222
Senior discount notes............................................... 127,370 -- -- 127,370
Other long-term debt................................................ -- 12,381 (12,381)(2) --
-------- -------- ----------- -----------
Total liabilities......................................... 143,121 37,378 (18,944) 161,555
Members' capital/shareholders' equity............................... 85,516 46 6,000 (1) 91,516
(46)(3) --
Accumulated deficit (3,238) (15,102) 15,102 (3) (3,238)
-------- -------- ----------- -----------
Total members' capital/shareholders' deficit 82,278 (15,056) 21,056 88,278
-------- -------- ----------- -----------
Liabilities and members' capital/shareholders' deficit.............. $225,399 $ 22,322 $ 2,112 $ 249,833
======== ======== =========== ===========
</TABLE>
(See notes on the following page)
27
<PAGE>
ACME TELEVISION, LLC
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(1) Reflects the allocation of the purchase prices for the Knoxville Acquisition
and the Pending Acquisitions as follows (dollars in thousands):
<TABLE>
<CAPTION>
KZAR AND ESTIMATED
KPLR WINT KAUO COSTS TOTAL
-------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Consideration:
Cash........................................................ $ 0 $13,200 $ 8,010 $ 0 $ 21,210
Deposits.................................................... 143,000 -- -- -- 143,000
ACME Parent Membership Units................................ -- -- 6,000 -- 6,000
Prepaid acquisition costs................................... -- -- -- 3,000 3,000
Consulting payments under management agreement ($1.0 million
current and $2.0 million long-term)...................... 3,000 -- -- -- 3,000
-------- ------- -------- --------- --------
Total.................................................. 146,000 13,200 14,010 3,000 176,210
Less:
Fair value of net tangible assets acquired.................. 4,305 -- -- -- 4,305
-------- ------- -------- --------- --------
Broadcast licenses.......................................... $141,695 $13,200 $14,010 $ 3,000 $171,905
======== ======= ======== ========= ========
</TABLE>
(2) Adjustments to record the estimated fair value of net tangible assets
acquired in the St. Louis Acquisition as follows (dollars in thousands):
<TABLE>
<S> <C>
Book value of net assets acquired.......................................................... $(15,056)
Other assets not acquired.................................................................. (2,583)
Note payable-programmer not assumed:
Current portion.......................................................................... 400
Long-term portion........................................................................ 3,455
Other long-term note not assumed........................................................... 12,381
Accrued liabilities:
Accrued liabilities not assumed.......................................................... 5,900
Working capital purchase price adjustment................................................ (192)
--------
Fair value of net assets acquired.......................................................... $ 4,305
========
</TABLE>
(3) Elimination of Station KPLR historical shareholders' deficit.
28
<PAGE>
ACME TELEVISION, LLC
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL(1)
------------------------- PRO FORMA PRO FORMA
CHANNEL KOPLAR ----------- -----------
32 COMMUNICATIONS ADJUSTMENTS THE COMPANY
------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................................................ $ 3,202 $ 27,260 $ -- $ 30,462
Operating expenses:
Programming........................................................... 3,060 11,365 -- 14,425
Selling, general and administrative................................... 1,497 11,318 (2,700)(4) 10,115
Depreciation and amortization......................................... 557 702 9,705 (5) 10,964
------- -------- --------- ----------
Total operating expenses........................................... 5,114 23,385 7,005 35,504
------- -------- --------- ---------
Operating income (loss)................................................. (1,912) 3,875 (7,005) (5,042)
Interest expense........................................................ (3,330) (2,155) (15,511)(2) (15,511)
-- -- 5,485 (3) --
Other, net.............................................................. (491) (699) 443 (6) (747)
------- -------- --------- ----------
Income (loss) before income taxes and extraordinary item................ (5,733) 1,021 (16,588) (21,300)
Income tax (expense) benefit............................................ -- (462) 462 (7) --
------- -------- --------- ---------
Net income (loss) before extraordinary item............................. $(5,733) $ 559 $ (16,126) $ (21,300)
======= ======== ========= =========
OTHER DATA:
EBITDA(8)(9).......................................................... $ (575) $ 5,922 $ 2,700 (4) $ 8,047
======= ======== ========= =========
</TABLE>
- --------------------
(1) The Company was not formed as of December 31, 1996. Accordingly, historical
results have not been presented. The unaudited consolidated statement of
operations for Station KWBP includes the six months ended June 30, 1996 and
the six months ended December 31, 1996.
(2) Reflects (i) interest expense (10.875% per annum) and amortization of
issuance costs (estimated to be $5.8 million amortized over 7 years) on the
Notes, and (ii) amortization of issuance costs on capital lease obligations
and bank fees (estimated to be $700,000 amortized over 5 years.)
(3) Reflects adjustment to eliminate historical interest expense.
(4) Reflects the (i) decrease in payroll and payroll related costs of selling,
general and administrative personnel due to termination of employees or
reduction in levels of compensation and (ii) elimination of certain
marketing programs as follows (dollars in thousands):
<TABLE>
<S> <C>
Adjustments to selling, general and administrative expenses:
Reductions of senior executive compensation....................................................... $ 1,750
Reductions of sales force......................................................................... 300
Discontinued marketing programs................................................................... 400
Other reductions.................................................................................. 250
---------
$ 2,700
=========
</TABLE>
(5) Reflects the amortization of $194.1 million of broadcast licenses, relating
to the Acquisitions, over a 20 year period.
(6) Reflects the adjustment to eliminate the reserve recorded by Koplar
Communications on a note receivable from a related party. This note
receivable will not be acquired by the Company.
(7) Reflects adjustment to income tax expense.
(8) EBITDA is defined as operating income (loss), plus depreciation,
amortization and other noncash charges, including amortization of
programming rights, minus programming payments. Although EBITDA is not
calculated in accordance with GAAP, it is widely used as a measure of a
Company's ability to service and/or incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operations and other income or cash flow data prepared in accordance
with GAAP, or as a measure of profitability or liquidity.
(9) Pro Forma EBITDA has not been adjusted to reflect the elimination of
payments of certain program obligations relating to programs where Station
KPLR's rights have expired or which are not currently being utilized by
Station KPLR or to reflect the impact of other potential adjustments to the
value of programming rights.
29
<PAGE>
ACME TELEVISION, LLC
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------- PRO FORMA PRO FORMA
ACME KOPLAR ----------- -----------
TELEVISION COMMUNICATIONS ADJUSTMENTS THE COMPANY
---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues............................................................ $ 2,155 $ 21,347 $ -- $ 23,502
Operating expenses:
Programming....................................................... 1,096 8,458 -- 9,554
Selling, general and administrative............................... 3,173 13,722 (8,851)(3) 8,044
Depreciation and amortization..................................... 551 490 6,965 (4) 8,006
-------- -------- --------- ----------
Total operating expenses...................................... 4,820 22,670 (1,886) 25,604
-------- -------- --------- ----------
Operating income (loss)............................................. (2,665) (1,323) 1,886 (2,102)
Interest expense, net............................................... (573) (1,117) (11,198)(1) (11,198)
1,690 (2)
Other, net.......................................................... -- (1,313) 985 (5) (328)
-------- -------- --------- ----------
Income (loss) before income taxes................................. (3,238) (3,753) (6,637) (13,628)
Income taxes (expense) benefit...................................... -- (1,031) (1,031)(6) --
-------- -------- --------- ----------
Net income (loss)................................................... $ (3,238) $ (2,722) $ (7,668) $ (13,628)
======== ======== ========= ==========
OTHER DATA:
EBITDA(7)(8)...................................................... $ (2,225) $ (1,346) $ 8,851(3) $ 5,280
======== ======== ========= ==========
</TABLE>
- --------------------
(1) Reflects interest expense (10.875% per annum) and amortization of issuance
costs (estimated to be $5.8 million amortized over 7 years) on the Notes.
(2) Reflects adjustment to eliminate historical interest expense.
(3) Entry records (i) decrease in payroll and payroll related costs of selling,
general and administrative personnel due to termination of employees or
reductions in levels of compensation and (ii) elimination of certain
marketing programs as follows (dollars in thousands):
<TABLE>
<S> <C>
Adjustments to selling, general and administrative expenses:
Reductions of senior executive compensation......................................................... $ 7,138
Reductions of sales force........................................................................... 1225
Discontinued marketing programs..................................................................... 300
Other reductions.................................................................................... 188
---------
$ 8,851
=========
</TABLE>
(4) Reflects amortization of broadcast licenses as follows: (i) $22.7 million of
Station KWBP broadcast licenses rights for the period from January 1, 1997
to June 16, 1997 (acquisition date) using a 20 year estimated life, and (ii)
$171.9 million broadcast licenses relating to the Knoxville Acquisition and
the Pending Acquisitions, amortized over an estimated life of 20 years.
(5) Reflects adjustment to eliminate the reserve recorded by Koplar
Communications on a note receivable from a related party. The note
receivable from related party will not be assumed by the Company.
(6) Reflects adjustment to income tax expense.
(7) EBITDA is defined as operating income (loss), plus depreciation,
amortization and other noncash charges, including amortization of
programming rights, minus programming payments. Although EBITDA is not
calculated in accordance with GAAP, it is widely used as a measure of a
company's ability to service and/or incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operations and other income or cash flow data prepared in accordance
with GAAP, or as a measure of profitability or liquidity.
(8) Pro forma EBITDA has not been adjusted to reflect the elimination of
payments of certain program obligations on programs where Station KPLR's
rights have expired or which are not currently being utilized by Station
KPLR or to reflect the impact of other potential adjustment to the value of
programming rights.
30
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements (the
'Pro Forma Financial Statements') are based on the financial statements of the
Company, Koplar Communications and Channel 32, Incorporated ('Channel 32')
included elsewhere in this Prospectus, adjusted to give effect to the Knoxville
Acquisition, the Albuquerque Acquisition and the Pending Acquisitions. The
unaudited pro forma consolidated statements of operations give effect to the
Transactions as if they had occurred as of the beginning of the periods shown,
and the unaudited pro forma consolidated balance sheet gives effect to the
Knoxville Acquisition, the Albuquerque Acquisition and the Pending Acquisitions
as if they had occurred as of September 30, 1997. The pro forma data are based
upon available information and certain assumptions that management believes are
reasonable. The Pro Forma Financial Statements do not purport to represent what
the Company's result of operations or financial condition would actually have
been had the transactions occurred on such dates or to project the Company's
results of operations or financial condition for any future period or date. The
Pro Forma Financial Statements should be read in conjunction with the financial
statements of the Company and the historical financial statements of Koplar
Communications and Channel 32, the prior owners of Station KPLR and Station
KWBP, respectively, included elsewhere in this Prospectus, and 'Management's
Discussion and Analysis of Results of Operations and Financial Condition.' In
connection with the St. Louis Acquisition, the Company entered into the St.
Louis LMA with Koplar Communications. Edward J. Koplar is the controlling
stockholder, chief executive officer and chief operating officer of Koplar
Communications. In addition, the Company intends to enter into the Management
Agreement with Mr. Koplar, and grant to an affiliate of Mr. Koplar the right to
encode the broadcast signals of Station KPLR and other television stations the
Company owns or operates with such entity's interactive technology. The Company
has also granted to Mr. Koplar approval rights with respect to certain
dispositions of Station KPLR by the Company for a period of five years. In
connection with the Portland Acquisition, the Company entered into an LMA with
Channel 32. See 'Certain Relationships and Related Transactions.' In addition,
Channel 32 obtained $4.4 million of membership units in ACME Parent upon
consummation of the Portland Acquisition. In connection with the Salt Lake City
Acquisition, $3.0 million of membership units in ACME Parent were issued to each
of Steven C. Roberts and Michael V. Roberts. Prior to such arrangements in
connection with the Acquisitions, the Company had no relationships with any of
the owners of such businesses.
The Knoxville Acquisition, the Albuquerque Acquisition and the Pending
Acquisitions will be accounted for using the purchase method of accounting.
After each acquisition, the total consideration of such acquisition will be
allocated to the tangible and intangible assets acquired and liabilities assumed
based upon their respective estimated fair values. The allocation of the
aggregate total consideration included in the Pro Forma Financial Statements is
preliminary as the Company believes further refinement is impractical at this
time. However, the Company does not expect that the final allocation of the
total consideration will materially differ from the preliminary allocations set
forth herein.
28
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
----------------------------- PRO FORMA PRO FORMA
ACME KOPLAR ----------- -----------
INTERMEDIATE COMMUNICATIONS ADJUSTMENTS THE COMPANY
------------ -------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents.............................. $ 27,211 $ -- $ (21,210)(1) $ 6,001
Accounts receivable, net............................... 405 7,281 -- 7,686
Due from parent........................................ 14,830 -- -- 14,830
Current portion of programming rights.................. 581 4,889 -- 5,470
Prepaid expenses and other current assets.............. 201 513 -- 714
-------- -------- ---------- --------
Total current assets......................... 43,228 12,683 (21,210) 34,701
Property and equipment, net............................ 4,177 2,394 -- 6,571
Programming rights, net of current portion............. 590 4,097 -- 4,687
Deposit................................................ 143,016 -- (143,000)(1) 16
Other assets........................................... 13,315 3,148 (3,000)(1) 10,880
(2,583)(2)
Broadcast licenses and other intangibles............... 22,570 -- 171,905 (1) 194,475
-------- -------- --------- --------
Total assets................................. $226,896 $ 22,322 $ 2,112 $251,330
======== ======== ========= ========
LIABILITIES AND MEMBERS' CAPITAL/SHAREHOLDERS' DEFICIT
Accounts payable and accrued liabilities............... $ 10,072 $ 9,289 $ 1,000 (1) $ 14,653
(5,708)(2)
Current portion of programming rights payable.......... 876 5,089 -- 5,965
Current portion of note payable-programmer............. -- 400 (400)(2) --
Note payable to bank................................... 3,500 -- -- 3,500
Current portion of capital lease obligations........... 284 -- -- 284
-------- -------- --------- --------
Total current liabilities.................... 14,732 14,778 (5,108) 24,402
Programming rights payable, net of current portion..... 597 4,542 -- 5,139
Obligations under lease, net of current portion........ 422 -- -- 422
Note payable-programmer................................ -- 3,455 (3,455)(2) --
Other long-term liabilities............................ -- 2,222 2,000 (1) 4,222
Senior secured discount notes.......................... 35,650 -- -- 35,650
Senior discount notes.................................. 127,370 -- -- 127,370
Other long-term debt................................... -- 12,381 (12,381)(2) --
---------- -------- -------- --------
Total liabilities............................ 178,771 37,378 (18,944) 197,205
Members' capital/shareholders' equity.................. 51,363 46 6,000 (1) 57,363
(46)(3)
Accumulated deficit.................................... (3,238) (15,102) 15,102 (3) (3,238)
---------- -------- -------- --------
Total members' capital/shareholders'
deficit.................................... 48,125 (15,056) 21,056 54,125
---------- -------- -------- --------
Liabilities and members' capital/shareholders'
deficit.............................................. $226,896 $ 22,322 $ 2,112 $251,330
======== ======== ======== ========
</TABLE>
(See notes on the following page)
29
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(1) Reflects the allocation of the purchase prices for the Knoxville
Acquisition, the Albuquerque Acquisition and the Pending Acquisitions as
follows (dollars in thousands):
<TABLE>
<CAPTION>
KZAR AND ESTIMATED
KPLR WINT KAUO COSTS TOTAL
-------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Consideration:
Cash...................................... $ 0 $13,200 $ 8,010 $ 0 $ 21,210
Deposits.................................. 143,000 -- -- -- 143,000
ACME Parent Membership Units.............. -- -- 6,000 -- 6,000
Prepaid acquisition costs................. -- -- -- 3,000 3,000
Consulting payments under management
agreement ($1.0 million current and
$2.0 million long-term)................ 3,000 -- -- -- 3,000
-------- ------- ------- ------ --------
Total................................ 146,000 13,200 14,010 3,000 176,210
Less:
Fair value of net tangible assets
acquired............................... 4,305 -- -- -- 4,305
-------- ------- ------- ------ --------
Broadcast licenses........................ $141,695 $13,200 $14,010 $3,000 $171,905
======== ======= ======= ====== ========
</TABLE>
(2) Adjustments to record the estimated fair value of net tangible assets
acquired in the St. Louis Acquisition as follows (dollars in thousands):
<TABLE>
<S> <C>
Book value of net assets acquired........................................ $(15,056)
Other assets not acquired................................................ (2,583)
Note payable-programmer not assumed:
Current portion........................................................ 400
Long-term portion...................................................... 3,455
Other long-term note not assumed......................................... 12,381
Accrued liabilities:
Accrued liabilities not assumed........................................ 5,900
Working capital purchase price adjustment.............................. (192)
--------
Fair value of net assets acquired........................................ $ 4,305
========
</TABLE>
(3) Elimination of Station KPLR historical shareholders' deficit.
30
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL(1)
------------------------- PRO FORMA PRO FORMA
CHANNEL KOPLAR ----------- -----------
32 COMMUNICATIONS ADJUSTMENTS THE COMPANY
------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................................................ $ 3,202 $27,260 $ -- $ 30,462
Operating expenses:
Programming........................................................... 3,060 11,365 -- 14,425
Selling, general and administrative................................... 1,497 11,318 (2,700)(4) 10,115
Depreciation and amortization......................................... 557 702 9,705 (5) 10,964
------- ------- -------- --------
Total operating expenses........................................... 5,114 23,385 7,005 35,504
------- ------- -------- --------
Operating income (loss)................................................. (1,912) 3,875 (7,005) (5,042)
Interest expense........................................................ (3,330) (2,155) (20,712)(2) 20,712)
5,485 (3)
Other, net.............................................................. (491) (699) 443 (6) (747)
------- ------- -------- --------
Income (loss) before income taxes and extraordinary item................ (5,733) 1,021 (21,789) (26,501)
Income tax (expense) benefit............................................ -- (462) 462 (7) --
------- ------- -------- --------
Net income (loss) before extraordinary item............................. $(5,733) $ 559 $(21,327) $(26,501)
======= ======= ======== ========
OTHER DATA:
EBITDA(8)(9).......................................................... $ (575) $ 5,922 $ 2,700 (4) $ 8,047
======= ======= ======== ========
</TABLE>
- - ------------------
(1) The Company was not formed as of December 31, 1996. Accordingly, historical
results have not been presented. The unaudited consolidated statement of
operations for Station KWBP includes the six months ended June 30, 1996 and
the six months ended December 31, 1996.
(2) Reflects (i) interest expense (10.875% per annum) and amortization of
issuance costs (estimated to be $5.8 million amortized over 7 years) on the
Television Notes, (ii) interest expense (12.0% per annum) and amortization
of discount and issuance costs (estimated to be $5.9 million including $4.3
million of the estimated gross proceeds from the sale of Units allocated to
Membership Units over 8 years) on the Notes, and (iii) issuance costs on the
capital lease obligations and bank fees (estimated to be $700,000 amortized
over 5 years).
(3) Reflects adjustment to eliminate historical interest expense.
(4) Reflects the (i) decrease in payroll and payroll related costs of selling,
general and administrative personnel due to termination of employees or
reduction in levels of compensation and (ii) elimination of certain
marketing programs as follows (dollars in thousands):
<TABLE>
<S> <C>
Adjustments to selling, general and administrative expenses:
Reductions of senior executive compensation....................................................... $1,750
Reductions of sales force......................................................................... 300
Discontinued marketing programs................................................................... 400
Other reductions.................................................................................. 250
------
$2,700
======
</TABLE>
The reductions of senior executive compensation reflect the elimination of
the chief executive officer at Koplar Communications and a net reduction in
general manager compensation based on the Company's employment agreement with
the current general manager of Koplar Communications.
(5) Reflects the amortization of $194.1 million of broadcast licenses, relating
to the Acquisitions, over a 20 year period.
(6) Reflects the adjustment to eliminate the reserve recorded by Koplar
Communications on a note receivable from a related party. This note
receivable will not be acquired by the Company.
(7) Reflects adjustment to income tax expense.
(8) EBITDA is defined as operating income (loss), plus depreciation,
amortization and other noncash charges, including amortization of
programming rights, minus programming payments. Although EBITDA is not
calculated in accordance with GAAP, it is widely used as a measure of a
Company's ability to service and/or incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operations and other income or cash flow data prepared in accordance
with GAAP, or as a measure of profitability or liquidity.
(9) Pro Forma EBITDA has not been adjusted to reflect the elimination of
payments of certain program obligations relating to programs where Station
KPLR's rights have expired or which are not currently being utilized by
Station KPLR or to reflect the impact of other potential adjustments to the
value of programming rights.
31
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA PRO FORMA
ACME KOPLAR ----------- -----------
INTERMEDIATE COMMUNICATIONS ADJUSTMENTS THE COMPANY
------------ -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.......................................................... $ 2,155 $ 21,347 $ -- $ 23,502
Operating expenses:
Programming..................................................... 1,096 8,458 -- 9,554
Selling, general and administrative............................. 3,173 13,722 (1,951)(3) 14,944
Depreciation and amortization................................... 551 490 6,965 (4) 8,006
-------- -------- --------- ---------
Total operating expenses.................................... 4,820 22,670 5,014 32,504
-------- -------- --------- ---------
Operating income (loss)........................................... (2,665) (1,323) (5,014) (9,002)
Interest expense, net............................................. (573) (1,117) (15,065)(1) (15,065)
1,690 (2)
Other, net........................................................ -- (1,313) 985 (5) (328)
-------- -------- --------- ---------
Income (loss) before income taxes............................... (3,238) (3,753) (17,404) (24,395)
Income taxes (expense) benefit.................................... 1,031 (1,031)(6)
-------- -------- --------- ---------
Net income (loss)................................................. $ (3,238) $ (2,722) $ (18,435) $ (24,395)
======== ======== ========= =========
OTHER DATA:
EBITDA(7)(8).................................................... $ (2,225) $ (1,346) $ 4,951(3) $ (1,620)
======== ======== ========= =========
</TABLE>
- - ------------------
(1) Reflects (i) interest expense (10.875% per annum) and amortization of
issuance costs (estimated to be $5.8 million amortized over 7 years) on the
Television Notes, (ii) interest expense (12.0% per annum) and amortization
of discount and issuance costs (estimated to be $5.9 million including $4.3
million of the estimated gross proceeds from the sale of Units allocated to
Membership Units over 8 years) on the Notes, and (iii) issuance costs on the
capital lease obligations and bank fees (estimated to be $700,000 amortized
over 5 years).
(2) Reflects adjustment to eliminate historical interest expense.
(3) Entry records (i) decrease in payroll and payroll related costs of selling,
general and administrative personnel due to termination of employees or
reductions in levels of compensation and (ii) elimination of certain
marketing programs as follows (dollars in thousands):
<TABLE>
<S> <C>
Adjustments to selling, general and administrative expenses:
Reductions of senior executive compensation...................................................... $1,238
Reductions of sales force........................................................................ 225
Discontinued marketing programs.................................................................. 300
Other reductions................................................................................. 188
------
$1,951
======
</TABLE>
Such adjustments do not reflect $5.9 million of non-recurring senior
executive compensation relating to the St. Louis LMA.
The reductions of senior executive compensation reflect the elimination of
the chief executive officer at Koplar Communications and a net reduction in
general manager compensation based on the Company's employment agreement with
the current general manager of Koplar Communications.
(4) Reflects amortization of broadcast licenses as follows: (i) $22.7 million of
Station KWBP broadcast licenses rights for the period from January 1, 1997
to June 16, 1997 (acquisition date) using a 20 year estimated life, and (ii)
$171.9 million broadcast licenses relating to the Knoxville Acquisition, the
Albuquerque Acquisition and the Pending Acquisitions, amortized over an
estimated life of 20 years (including $3.0 million payable pursuant to the
Management Agreement to be entered into with Mr. Koplar upon consummation of
the St. Louis Acquisition, which the Company allocated to broadcast licenses
because it has no right to compel Mr. Koplar to provide any services in
exchange for such payment).
(5) Reflects adjustment to eliminate the reserve recorded by Koplar
Communications on a note receivable from a related party. The note
receivable from related party will not be assumed by the Company.
(6) Reflects adjustment to income tax expense.
(7) EBITDA is defined as operating income (loss), plus depreciation,
amortization and other noncash charges, including amortization of
programming rights, minus programming payments. Although EBITDA is not
calculated in accordance with GAAP, it is widely used as a measure of a
company's ability to service and/or incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operations and other income or cash flow data prepared in accordance
with GAAP, or as a measure of profitability or liquidity.
(8) Pro forma EBITDA has not been adjusted to reflect the elimination of
payments of certain program obligations on programs where Station KPLR's
rights have expired or which are not currently being utilized by Station
KPLR or to reflect the impact of other potential adjustment to the value of
programming rights.
32
